The company is over 100 years old. But you wouldn’t know it from its revenue curve. For nearly 30 years that line is flat to decreasing at an increasing rate. Same goes for profits. The only way the firm can generate a profit, and that being meager at best, is by performing some type of accounting magic.
Unfortunately, the scenario described above is real and all too common. So what went wrong and how can you fix it? One approach is Business Lifecycle Management. Understanding business life cycles provides insight in diagnosing growth inhibitors while at the same time helping management recognize and act on strengths and opportunities for reversing unfavorable performance trends.
Traditional lifecycle analysis focuses on four life stages of a business: start-up, growth, maturity, and decline — which is essentially the same as a product lifecycle. However, at MindMeld we eschew this way of thinking for a simplified, and in practice, more useful three–phase model more in line with the way an organization develops rather than a specific product. The diagram below illustrates the MindMeld Business Lifecycle Continuum.
As noted, phase one is very much vision-driven and entrepreneurial. It is characterized by a dominant leader with tightly held views about the business and its products and services. Indeed, the business depends heavily on this leader and her or his personal vision, skills, expertise, and network for its early stage growth, much as a newborn relies on its mother.
Many small and medium sized businesses never make it out of this growth stage, either by choice or because the leader does not have the ability to identify, develop and trust capable managers. Lack of organizational focus, mission, or a higher purpose is another problem encountered in this period. Both were issues in the case cited above, where the direction of the organization shifted at the whim of the chief executive. Hence, although the firm is over 100 years old it remains an infant in terms of physical and psychological development. Failure to successfully transition to the management phase is also common among family-owned businesses where control is paramount and information is jealously guarded.
Phase Two, or the Management Stage, represents a major inflection point in the life of the organization. Crossing the chasm between phase one and phase two involves large-scale disruption and introduces the importance of communication, trust, and short- and long-term planning. In most cases, moving from phase one to phase two causes a downturn in revenues and most assuredly profits due to the need for hiring qualified director and manager level functional area leaders.
Phase Two is also where process, marketing, and brand asset management become vital elements of the business growth equation. At this stage the personal networks of the founder and key Entrepreneurial Phase associates are maximized and the firm must now rely on broadcasting its inherent value and selling story to a wider, more diverse, and unfamiliar audience, both internally and externally. Doing so requires organizational focus, commitment to shared values, and a unified vision.
A common sign that your firm is not successfully making the transition into a process-driven organization is failure to scale. This typically results in either an oscillating revenue curve or a one that increases at a significantly decreasing rate. As a result, the Entrepreneurial Phase is elongated and the firm suffers from a self-imposed ceiling on growth.
In the example above the revenue curve was nudged up by the opening of branch offices in new markets. Unfortunately, these gains were short-lived and insufficient to cover the added expense of the expansion. This is also quite common with firms committed to a channel only push sales strategy, like value-added-resellers or CPG firms that rely too heavily on brokers and other sales organizations for growth. Without generating the necessary end-user or consumer demand the initial benefits of scale quickly disappear and the organization winds up wasting valuable time, resources, and money on a venture that was doomed from the start. Real life scenarios like this underscore the value of Business Lifecycle Management in developing and continually improving on your business plan.
For the fortunate among you who reach Phase Three, or the Maturity Stage, innovation and reinventing the organization are now imperative if you want to keep growing. Here too self-imposed limits are the biggest challenge. Assumptions are made about end-user demand based on what happened in the past. Firms confuse automating processes with innovation. Management fails to continuously examine and improve processes, resting on “we’ve always done it that way” thinking.
Like the cartoon above, resistance to change is a major hurdle when your firm encounters this inflection point. Once again, the inevitability of a flattening revenue curve coupled with a proportionate decline in profits makes innovation a terrifying proposition for business leaders, especially those in a publicly traded stock environment answering to a board of directors with one and only one objective — increasing shareholder value.
The one constant through all three phases is the necessity for Transformational Leadership. That is, a mature management team committed to creating something of value with a higher purpose other than just making money. Doing so means as a leader you must change and grow along with the business, giving up more and more control along the way.
Ben Franklin said, “when you are finished changing, you are finished.” If you need help defining and understanding your Business Lifecycle trajectory, please do not hesitate to contact me at doug.knuth@mindmeldmarketing.com. We have proven methods for helping you transform disruption into opportunity.
© copyright 2015, Doug Knuth, MindMeld Marketing, Inc. All rights reserved.